Cisco Shifts Focus from Recurring Revenue to Hyperscaler Orders

Cisco Systems (CSCO) has shifted its focus from recurring revenue to hyperscaler orders. The company's share of subscription-based revenue, once a key metric, has fallen to 48% of total revenue in fiscal Q4 2026, down from 56% in late fiscal 2025. This decline is due to the rapid growth of hardware product revenue, which rose 24% year over year, while services revenue remained flat at $3.8 billion.

The hyperscaler AI infrastructure business has become a significant contributor to Cisco's revenue, with about 6% of total revenue coming from this area in fiscal 2026, up from less than 2% in fiscal 2025. The company took $9.3 billion of AI infrastructure orders in fiscal 2026, with 60% being Silicon One-based systems and 40% optics.

The shift towards hardware product revenue has impacted Cisco's gross margin, which fell by 270 basis points due to higher hardware mix and memory costs. However, the company has flagged a further slight gross margin headwind through fiscal 2027. Despite this, Cisco's operating margin expanded from 34.3% to 35.9% year over year, thanks to the hyperscaler business being won with minimal incremental expense.